The Charles Schwab Corporation
) has announced a massive fee diminution on 15 of its
exchange-traded funds (ETFs). The fee reduction catapults the
company's position in the ETF market as the one with the lowest
operating expense ratio (OER) in their respective Lipper
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Charles Schwab has decreased fees in the range of approximately
17%-59% across its U.S. equity, international equity and bond ETFs.
The new fee structure has come into effect from the 20th September,
as per the filings with the Securities and Exchange Commission.
ETF market is one of the fastest growing and highly promising
markets for generating good returns. Therefore, many companies have
shown tremendous interest in these. Similar to mutual funds, ETFs
have a plethora of assets such as stocks and bonds. However, in
contrast to mutual funds, which are priced only once a day, ETFs
trade continuously on an exchange and reprice in real time. This
makes trading very lucrative for the investors as well as the
Apart from Charles Schwab, a number of companies including
) have slashed ETF fees in the recent months. Moreover, Vanguard
Group - the market leader with its low priced ETFs - is forcing
smaller participants like Charles Schwab to cut down on fees. This
is ultimately leading to a kind of price war, in which the
investors stand to benefit the most.
Earlier, in 2009, Charles Schwab had kicked off a similar price
war, when it became the first major brokerage firm to provide
commission-free ETF trading online. This prompted several other
E*TRADE Financial Corporation
TD Ameritrade Holding Corporation
) and Vanguard to follow the suit.
However, it must be mentioned that these price cuts do look very
tempting, but the fees on ETFs are already very low. Therefore,
impact from the price cut would not be as beneficial as it looks.
Given the gloomy economic scenario, company's financials will
continue to be hampered by lower trading activities, weaker equity
markets and reduced interest rate yields. Therefore in order to
further diversify its revenue stream, Charles Schwab is keen on
taking the advantage of the rapidly growing ETF industry, which
will increase its market share and boost its profitability in the
Charles Schwab currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
also maintain a long-term Neutral recommendation on the stock.